DMCC, refiner deny improper gold trading

Dubai, February 27, 2014

Dubai's gold exchange and one of its biggest gold refineries have denied reports alleging they ignored international guidelines designed to prevent human rights abuses and underground trade in the precious metal by African warlords.

The reports by Britain's Guardian newspaper and the BBC are a potential blow to Dubai's rising reputation as an international market in many commodities. Over the past decade it has become one of the world's biggest marketplaces for gold.

The Guardian alleged that the Dubai-based Kaloti Group, a major gold refiner and jeweller, had failed to examine suspicious deals, accepting 2.4 tonnes of gold in over 1,000 transactions with customers who provided no paperwork.

Kaloti took millions of dollars of gold knowing it was plated in another metal and seemed to have been smuggled out of Morocco, the newspaper said.

There is no evidence, however, that the refinery accepted conflict gold, the newspaper said.

The paper cited an inspection of the company by consultants Ernst & Young last year. Officials in Dubai changed certain rules - which the Guardian did not specify - to keep the verdict of the inspection secret, but details of the study were given to the Guardian by a "whistleblower" from Ernst & Young, the newspaper added.

Kaloti called the reports false and lacking any evidence, saying any violations of the guidelines found by the inspection were related to "documentation anomalies" and quickly corrected. There was no cover-up of the results of the inspection, it said.

"In all of Ernst & Young's reports and findings during the process, Kaloti was never found to be sourcing from conflict zones," it said in a statement on its website.

Contacted on Thursday, a public relations firm representing the Dubai Multi Commodities Centre (DMCC), which hosts the emirate's gold market, said it had no formal statement.

But in an email sent to stakeholders in the market and seen by Reuters, the DMCC said: "We wanted to reassure you that DMCC strongly rejects any suggestion that it has acted in any way improperly in relation to the Responsible Sourcing Guidance and review process for member refineries."

It said the British media reports were based on information from "a disgruntled former Ernst & Young partner" who "has sought to publicise a number of baseless allegations".

Ernst & Young said in a statement that it identified some cases of non-compliance with DMCC rules when it inspected Kaloti, but that Kaloti then corrected these problems, and there was no evidence that gold from conflict zones in Africa had moved through Kaloti's refinery.

"EY Dubai refutes entirely the suggestion that we did anything but highly professional work in relation to our compliance engagement with Kaloti," it said.

More than 25 percent of the world's physical gold passed through Dubai in 2012, with the value of gold trading there reaching about $70 billion. Couriers carrying gold bullion in their luggage regularly fly out of the emirate to nearby countries such as India. - Reuters